Wednesday, 9 June 2010

iAd: Is Apple's Dominance of iPhone Advertising Inevitable?

Apple's WWDC keynote speech has come and passed and while once again Steve Jobs has given the world something to talk about (and purchase), the detailing of iAd struck me as an interesting point in the iPhone 4G's unveiling. As shown in part I of his keynote below, iAd is Apple's complete answer to engaging in-app advertising.

While the iPhone/iPod touch has no shortage of advertising providers and networks, in-app advertising  represents a section where Apple, as the hardware maker, has a distinct advantage. Though debate around the office entailed how engaging or annoying in app advertising can be, the channel represents an interesting way forward for engaging mobile messaging.

Apple's move on the in-app advertising market seems to be a fast but thorough opening salvo on what could be the definitive battle for dominance within the platform. Previous defensive action against Abobe, through spurning Flash (crippling adobe's content creation and advertising facilitation on the platform), and other advertising networks such as Google/Admob, including rumors of changes in operating terms, mean that iAds wasn't the first, just the biggest, step in making life difficult for Apple's advertising competitors.

So if Apple is quickly becoming seriously oriented towards in-app advertising for the iPhone, what is the company's offering, what is actually at stake and what are Apple's chances for dominance?


iAd is the latest iteration in a line of in-app content that has been developing alongside iPhone hardware. Within the mobile sector, marketers can utilize basic tools such as text messaging, traditional avenues such as display or search and branded content such as sponsored apps or content. While cost and engagement vary between possible channels, regulations on contact and relatively low iPhone click through rates on a variety of mobile content shows that engagement is they key to increasing mobile advertising effectiveness. Though both sponsoring/developing apps & in-app advertising offer opportunities for an engaging experience, in-app advertising attempts to utilize targeting efficient existing apps as a way to avoid longer lead times and development costs. Features such as video, location awareness, multiple input factors and streaming content mean that in-app advertising is utilizing an array of content options to message the consumer.

iAd answers the increasing engagement challenge by serving up interactive content within apps, allowing users to get related and engaging messaging without the feeling of leaving the application. While both iAd & Google/Admob's solution use HTML 5 to serve up content, launching upon interaction into full mini-applications, Apple's has claimed to do so without launching a browser (something that is probably related to the launch of multitasking on iOS4), providing a possible advantage over other providers. Apple's revenue sharing model with developers is a relatively attractive 60% for the application's author, meaning the choice to work with the hardware provider on content avenues should be a favorable one.

Costs are reported to be at $.01 per banner view and $2 per click to enlarge the banner into the interactive content. Companies are reported to need to invest up to $10 million for a launch spot on July 1st.

While the global mobile advertising market is estimated to be at $5.9 billion, growth has been heavily forecasted due to moves by Google & Apple. Rapid growth within the market's estimation can be atleast partly attributed to Apple's iAds launch, as it has been revealed to have lined up $60 million in initial advertising commitments. These initial wins have led the company to state that it will capture 48% of the US advertising market for the second half of the year, giving them a dominant position on the in-app advertising landscape for their biggest market. A definitive success early in the US market could translate into advantages internationally, as well as forcing competitors to concentrate on other handsets/operating systems such as Android. 

The opportunity for Apple to turn their iPhone advantage into an advertising success boils down to how well the platform can perform during the development of an in-app ad, the time it engages with the consumer and afterwards in proving its value & effectiveness. The projections set forth by the company seem to indicate that success isn't just an efficient return on its efforts, instead aiming to lead the market in iPhone application advertising. Estimating the chances for iAd's success requires analyzing how it performs relative to its competitors and for the marketer in 5 general areas:

 How well can segments be targeted?

      iPhone application advertising already benefits from targeting by application. However, the ability to target based on insights from application functionality may only be the start in increasing messaging effectiveness. Based on their position as the hardware manufacturer & the operator of the iTunes platform, Apple comes out ahead of the game in targeting capabilities for serving advertisements. By leveraging possible purchase histories, usage figures & algorithms similar to their current genius features, Apple should be able to deliver insight into user segmentations in a way that other networks/providers can't.

Pros: Able to leverage iTunes user data to deliver in-depth segmentation
Cons: Possible user backlash over privacy issues

If done with tact, Apple should be able to coax the same willingness to share they found with users in their Genius features over to iAds, providing a superior user targeting experience

What is the development capability?
       Apple's current development model for iAd content involves a characteristically closed and tiered process. For the moment, Apple itself will develop the actual ad content, protecting an aesthetic for the service at launch, but adding an additional (and possibly superfluous step) in the client/creative/media agency model. If Apple can step delicately into a productive ICM model, they can become a valued creative partner for agencies, however I imagine a large amount of ego repair and openness if going to be required for an efficient relationship with existing creatives.
       Assuming Apple integrates itself into the development process, their shepherding oft he iAd aesthetic may help to codify the capabilities of the platform for a quick handover to external developers after launch.While the programmer in me hates the idea of limiting capabilities, a standardized, yet robust tool kit (monitored and updated by a very motivated hardware manufacturer) bodes well for the creation of engaging user content.

Pros: Apple's control over the creation of iAd ensures a uniform quality at launch and a standardized toolkit for developers to come.
Cons: The scale of Apple's launch partners means that a variety of agencies are going to require tight integration (and promises of quickly coming increased access) to utilize the platform effectively. A new step in a complex development process is never quickly welcomed.

If Apple manages to strike a delicate balance in a complex development process, controlling the iAds platform can help to foster the user experience and establish a vaunted aesthetic. If they don't manage to integrate and ignore development update down the line however, any aesthetic advantage goes away, leaving only some annoyed developers/creatives.

How well is messaging implemented?
       Apple's seamless integration of interactive advertising content to the application experience should give it an edge over many of the current advertising solutions (atleast until development catches up with the new OS's multitasking). Preserving this advantage against Google/Admob's & converted Flash to HTML 5 content depends on how the new feature is leveraged against current in-app browser based solutions.

      Assuming ad integration isn't an issue (or targeting), Apple may still hold an inherent advantage due to their knowledge of the hardware, the direction of development and access to future updates. Being able to develop against future capabilities for in app advertising means shorter development times and the ability to promise novel features to potential advertisers. Once Apple hands the SDK over to developers, continuing this advantage relies on integration between developers, creatives and Apple as a whole.

      The increased functionality from iAd (and other advertisers) can lead the way in increasing innovation for all advertisers. Engagement through geo-location, streaming content or possibly unlocked DLC is poised to drive advertisement acceptance within apps and may serve to increase effectiveness.

Pros: Apple inhabits a unique position in the development process. If it can leverage current and upcoming innovations to enhance the advertising experience, it can generate an advantage that other competitors may not have.
Cons: Apple's advantage as the hardware manufacturer and the content facilitator may allow for impressive content creation, but it may also limit innovation. New functionality is going to be required to maintain levels of user engagement. As users habituate to the existing features present in iAds, new experiences and capabilities must be developed. If necessity if the mother of invention, competitors may have a unique view on how to challenge Apple.

Developing an engaging experience is Apple's advantage to lose with iAds. Both inter-developmental and company integration is key to messaging/engagement, without these, some of the advantage held as the hardware manufacturer is lost. 

 What analytical capabilities exist to measure effectiveness?
       Apple's choice to serve the ads themselves to users, as well as possibly limiting analytical capabilities for other advertisers, shows that Apple is serious about being the primary source of effectiveness data for possible clients. The ability to provide the most robust and timely data on engagement and mobile effectiveness can serve as possibly the largest selling point for iAd.If Apple's restrictions on other ad providers can corner the market on iPhone effectiveness data, they stand to become something akin to the Google Analytics of iPhone app/advertising data.

Pros: Analytical capability stands as the best foothold for iAd to force others out of the market. Advertising effectiveness data is key to justifying spend, adjusting campaigns and empowering clients.
Cons: Taking the position of key data warehouse of iAd means that Apple needs to think as an adserver, analytics provider and general media owner. Considering other parties are more experienced at this combination of jobs, the company needs to adapt quickly.

Apple's company history eliminates many worries about its role in adserving & analytics, but its closed stance on much of the company's data seems to indicate that robust campaign data may go the way of a summarized dashboard (ala Google Analytics).


What is the price/value relationship?
      Apple's pricing structure of $.01 per view and $2 per engagement shows that engagement is valued at a premium within the advertising pricing model. A view, as shown by the pricing plan, is recognized to just be a partially effective entry mechanism to content. While the low view price is rather effective at conveying value, the $2 engagement price places an emphasis on creating engaging content. While all of the launch companies command a media spend large enough to absorb such a cost, products with low CPA targets or consumer lifetime values must hope that engaged consumers will be motivated to purchase.

Pros: Apple's pricing model allows for multiple views (without engagement) at a rather sensible price. Engagement content should be rich enough to provide a cost effective level of engagement.
Cons: Establishing a direct link in advertiser's minds between conversion and the $2 content response cost may be a hard sell initially. 

The value proposition of iAd relies on how well Apple & subsequently developers create engaging content which relates heavily to the brand and conversion. Initial successes should foster a belief for advertisers the medium is cost effective. Lack luster initial performance may reinforce traditional advertiser's view of the channel as emerging and cause Apple to modify the value proposition.


 iAd represents an aggressive down-channel move for Apple. The breadth of their data, the understanding of their hardware and their ability to develop & scale the engagement experience can serve them well as an advertising platform provider. While success seems very probable for the company, they must overcome a closed corporate culture, integration into an advertising model they have yet to heavily deal with & the responsibility of growing the entire channel rather tangibly. If done correctly, Apple stands to deliver a revolutionary device to not only the consumer market, but advertisers. 

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